by Anna Manning
Lindsay Marchello reports for the Carolina Journal that the state Department of Revenue is gearing up to asses sales tax on more out-of-state online retailers who make sales to North Carolina residents, but it is unclear whether the department has the legal authority to do so.
NCDOR on Tuesday issued a directive requiring online retailers not physically in North Carolina to start collecting sales taxes on sales sourced to the state. The move may result in a tax increase of as much as $400 million, according to the N.C. Retail Merchants Association.
While the directive cites a recent U.S. Supreme Court decision and existing law as the basis for expanding tax collections, the legislature hasn’t passed a new statute implementing that court decision.
Article II, Section 23 of the N.C. Constitution says the General Assembly must pass all revenue (tax) laws.
The Cooper administration’s directive cites a section 5 of an existing law, N.C. Gen. Stat. § 105-164.8(b):
“The retailer, by purposefully or systematically exploiting the market provided by this State by any media-assisted, media-facilitated, or media-solicited means, including direct mail advertising, distribution of catalogs, computer-assisted shopping, television, radio or other electronic media, telephone solicitation, magazine or newspaper advertisements, or other media, creates nexus with this State.”
The citation ends there, but the actual statute doesn’t. The next sentence reads:
“A nonresident retailer who purchases advertising to be delivered by television, by radio, in print, on the Internet, or by any other medium is not considered to be engaged in business in this State based solely on the purchase of the advertising.”
In other words, state law says an out-of-state online merchant merely promoting its products in North Carolina doesn’t have a presence here.
This is an important exemption the directive fails to mention, said Paul “Skip” Stam, a Wake County attorney and former House majority leader.
Read more about the Cooper administration directive here.